Gold prices have been trending close to all-time highs in recent weeks, fuelled by ‘safe-haven’ buying as recession fears linger. Here’s a closer look at two companies that we think can take advantage of these higher prices.

Investing in individual companies isn’t right for everyone. That’s because it’s higher risk, your investment depends on the fate of that company. If that company fails, you risk losing your whole investment. If you cannot afford to lose your investment, investing in a single company might not be right for you. You should make sure you understand the companies you’re investing in and their specific risks. You should also make sure any shares you own are part of a diversified portfolio.

This article isn’t personal advice. If you’re not sure an investment is right for you, seek advice. Investments and any income from them will rise and fall in value, so you could get back less than you invest.

Barrick Gold

2022 was a challenging year for Barrick, like many gold miners for that matter. Rising costs were met with broadly flat average gold selling prices and the result was a decent hit to profits.

However, gold prices bounced back over the tail end of the year and sit close to all-time highs at around $2,000 an ounce. That’s certainly high enough for low-cost producers like Barrick to generate healthy cash flows – free cash flow is expected to top $1bn over the current financial year.

High-quality assets are one of Barrick’s main attractions, and a large geographical footprint helps limit some of the political uncertainty inherent in mining operations.

The expansion of the low-cost Pueblo Viejo mine is progressing, expected to extend the mine’s life beyond 2040. Increased production at existing mines can be a particularly powerful driver for the group. It’s also been good to see progression in both gold and copper reserve levels as organic expansion uncovers new deposits. This is key, as it reduces reliance on acquisitions to support future production guidance.

Barrick’s top-tier gold portfolio is backed up by a strong balance sheet, benefiting from the good conditions over the past few years. From that place of strength, a £1bn buyback was announced in February and the 2.3% forward yield looks well covered. Remember, yields are variable and aren’t a reliable indicator of future income. No dividend is ever guaranteed.

Cost challenges aren’t going away anytime soon. We’re still cautious about the shorter-term outlook while costs continue to rise.

We think Barrick’s large, diversified footprint puts it as one of the better options in the sector and a name sure to benefit from a higher gold price. Of course, there are no guarantees.

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Centamin

Centamin is another gold miner, but with a much more concentrated portfolio than a global giant like Barrick, it offers something different.

Operations focus on the Sukari mine in Egypt, with another couple of sites at varying stages of development. A concentrated portfolio adds risk. We’d argue the added risk paves the way for greater upside potential. Nonetheless, if anything happens to the site in Egypt, there’s little in the way of backup.

Production at the Sukari mine has been in decline for several years. But 2022 marked an end to that trend, production’s expected to return to around 500,000 ounces from 2024, slightly ahead of some estimates. Reserves have been improving and an updated expansion plan is expected in the second half.

Diversification away from the Sukari mine is underway, with progress being made at the Doropo project in Côte d’Ivoire. The latest project study is due for completion in the first half of this year, which could act as a near-term catalyst. The business is on strong foundations, with cash on the balance sheet and zero debt. But as with all mining projects, risks are high.

Like Barrick, costs have been on the rise, putting pressure on margins. The effects are being reduced to some extent by a $150m cost-saving programme due to be delivered by the end of the year. Progress so far has been encouraging, with $116m in savings delivered as at the end of the last financial year.

Its concentrated portfolio makes Centamin a higher-risk option than some of its larger peers. That’s reflected in a less demanding valuation, which we see as offering upside. Though, there’s no guarantee.

SEE THE LATEST CENTAMIN SHARE PRICE AND HOW TO DEAL

Unless otherwise stated, estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates aren’t a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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